From October to mid-November, the price of pork continued to decline, but the decline was slow and resistant, mainly due to the small increase in supply and the low acceptance of low prices by the breeding end.
The Zhitong finance APP learned that China Post Securities released a research report stating that the 17 listed companies have collectively met 80.7% of the expected slaughter volume. The industry is cautious about market expectations, with slow capacity growth. After the third quarter report, some companies have once again lowered their slaughter targets. From October to mid-November, the price of pork continued to decline, but the decline was slow and resistant, mainly due to the small increase in supply and the low acceptance of low prices by the breeding end. In terms of production capacity, the current round of pig production capacity has only slowly recovered since May 24th, 2024, with only a cumulative growth of about 2% by October, and the current inventory of breeding sows is still lower than the same period in 2023. This implies that slaughter volumes for the fourth quarter of this year and the first half of next year may be difficult to increase significantly, and there may be a large gap in expectations for next year's pork prices.
The main opinions of Zhongyou Securities are as follows:
In October, the price of pork continued to decline, and listed companies slaughtered in line with the trend, with the slaughter volume continuing to increase and the slaughter weight decreasing slightly.
1) Quantity: Slaughter in line. The 17 listed pig companies collectively slaughtered 13.239 million pigs, an increase of 6.2% from the previous month and 4.3% year-on-year. In the first 10 months, the 17 listed companies collectively slaughtered 0.126 billion pigs, with a cumulative year-on-year increase of 2.0%. After the decline in pork prices from October, the slaughter accelerated. The 17 listed companies have collectively met 80.7% of the expected slaughter volume. The industry is cautious about market expectations, with slow capacity growth. After the third quarter report, some companies once again lowered their slaughter targets; the pig slaughter volume at the listed companies has only slightly increased.
2) Price: Continuing to decline. The average price of slaughter in October for 14 listed companies was 17.64 yuan per kilogram, a decrease of 6.84% month-on-month and an increase of 17.02% year-on-year. With the increase in pig supply, the price of pork continued to decline from October to mid-November. However, the decline in pork prices was slow and resistant, mainly due to the small increase in supply and the low acceptance of low prices by the breeding end. As the weather cools down, pork demand has improved slightly, and by the end of November, pork prices began to bottom out and rise. In December, there will be several positive factors such as pickling, holidays, etc., and pork prices are expected to fluctuate narrowly.
3) Weight: Increase first then decrease. The average weight of slaughter for 10 listed companies was 117.4 kilograms/head, a decrease of 1.27% month-on-month. In the first half of the month, the market slaughter rhythm was normal, but with the temperature dropping, the weight gain speed of pigs increased, causing the average slaughter weight to rise. In the second half, the market view on future trends weakened, leading to enhanced expectations of reduced weight slaughter by companies, driving the decrease in slaughter weight.
October's production capacity growth remains slow, waiting for expected recovery.
The Ministry of Agriculture, Steel Union Agricultural Products, and Yongyi News announced that the month-on-month changes in October's breeding stock were +0.30% (previously +0.64%), +0.39% (previously +0.53%), and +0.56% (previously +0.60%). The growth rate of October's production capacity slowed compared to September. Although the industry is still profitable, due to concerns about future pig price declines, autumn and winter diseases, and other issues, breeding companies are cautiously increasing production, and the enthusiasm for second breeding has also receded. The current round of pig production capacity has only slowly recovered since May 2024, with a cumulative growth of only about 2% as of October, and the current breeding sow inventory is still lower than the same period in 2023. This corresponds to the difficulty of significant growth in pig production in the fourth quarter of this year and the first half of next year, with the possibility of large discrepancies in pig price performance next year.
Investment recommendation: With low valuation, companies with cost advantages are more competitive.
China Post Securities believes that the current industry continues to be profitable, pig price performance has exceeded expectations to some extent. However, due to market concerns about pig prices next year, there is a certain degree of deviation between stock price performance and fundamentals. After a previous adjustment, the sector has a low valuation and the value of allocation is highlighted. It is recommended to prioritize targets with outstanding cost advantages and also consider growth. 1) Leading companies have high certainty and relatively obvious cost advantages. Recommended focus: Muyuan Foods (002714.SZ), Wens Foodstuff Group (300498.SZ). 2) Small and medium-sized enterprises have faster growth in offloading and greater room for cost reduction. Recommended focus: Leshan Giantstar Farming&Husbandry Corporation (603477.SH), Zhejiang Huatong Meat Products (002840.SZ), Tecon Biology Co.Ltd (002100.SZ), and Tangrenshen Group (300313.SZ).
Risk warning: Risks of animal disease outbreaks and fluctuations in raw material prices.
